Not the Right Moment for Lurch to Austerity

April 21st, 2015

In an interview on April 19. 2015, with CNN’s Fareed Zakaria, Summers said, “This is a moment for us, as a country, to do what a business would do, which is to take advantage of low borrowing costs to invest in our future.” Summers told Zakaria, “This is not the right moment for a lurch to austerity.”

A ‘maddening’ situation: Larry Summers, the former U.S. Treasury Secretary under President Bill Clinton, had a similar take.

He warned that America’s economy is entering a period of stagnation — he dubs it “secular stagnation” — where it won’t be able to achieve its full growth potential because everyone is saving too much and not spending.

“We are doing less investment in infrastructure than at any time since the Second World War on a net basis,” Summers told Zakaria.

He went as far as calling the situation “madness” since it’s incredibly cheap to borrow money right now when interest rates are at a record low.

“[This] is a moment for us, as a country, to do what a business would do, which is to take advantage of low borrowing costs to invest in our future,” said Summers, who worked as a top adviser to President Obama. “This is not the right moment for a lurch to austerity.”

The U.S. economy grew 2.4% last year. That’s good, but not great. Since the end of World War II, America’s economy has expanded over 3% a year, on average. It has yet to get back to that point after the financial crisis.

What needs to change? Like Paulson, Summers believes the tax code needs changes, especially to aid the middle class. He also supports raising the minimum wage, an issue that is taking center stage in the 2016 presidential race.

Several major corporations, including Walmart (WMT) and McDonald’s (MCD), recently raised wages for workers.

As 2016 candidates begin to form their policy teams, Paulson and Summers gave a preview on what the top economic issues are likely to be.

Yes, the U.S. economy is growing again after the Great Recession, but it’s affecting people differently. Wages for many workers haven’t gone up much, if at all, and they feel the inequality with the top. How to change that is up for debate.

Lawrence H. Summers is the Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as the 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama.